Mortgage rates plummet and everything has suddenly changed — for now

Prospective borrowers with strong credit are locking in mortgages this week at the lowest rates in more than a year, loan officers and lending executives told HousingWire on Friday.

A sample of more than a dozen industry professionals said they were quoting most borrowers in the high 5% to low 6% range on government loans and in the mid-6% range for conventional mortgages. Quotes vary based on credit scores, points and other factors.

This generally matches up with data from Mortgage News Daily, which looks at marketed rates for strong credit profiles. On Friday, it recorded conventional 30-year mortgage rates of 6.40% and 15-year conventional rates of 5.89%. Fixed rates through the Federal Housing Administration (FHA) were at 6.10% and those through the U.S. Department of Veterans Affairs averaged 6.12%. Some rates were down nearly 50 basis points in a single week.

In just the past day, loan officers should have seen their pricing improve between 25 and 40 basis points on government loans, and by 20 to 60 basis points on conventional scenarios, said Rick Roque, executive vice president of retail at Sierra Pacific Mortgage. The rate declines “means better pricing to consumers, incentivizing them to take advantage of approximately half a percentage point in rate improvement in the market,” he said.

Here’s how LOs are handling the sudden drop in rates.

Indeed, one West Coast LO told HousingWire that he quoted a borrower a 5.75% rate on a 30-year FHA loan for a $500,000 Southern California home purchase. The borrower had a 700 FICO score and is putting down 3.5%.

“I don’t think we’ll see a big refi move until September,” the LO said, adding that it should be a “decent fall and winter for refis.”Several LOs and mortgage executives told HousingWire they’ve seen an uptick this week in refi interest and in purchase locks, especially following the jobs report. But few are popping the champagne just yet. “Vibes are cautiously optimistic,” said Jay Promisco, president of Sierra Pacific Mortgage. “A lot of floaters are waiting for more improvement. Rates are firmly in the 6s for most scenarios, and not a lot of reasons right now based on the economic data for rates to go back up. It might be a fun end-of-summer rally. Doesn’t help the inventory issue, but lower rates for borrowers is always good.”

Ravi Patel, a branch manager for UMortgage in Kentucky, said he’s working with borrowers to take advantage of the here and now.

“We’re in a unique window of opportunity where these lower rates haven’t had a strong foothold in the market yet. … It hasn’t been consistent yet,” Patel said. “For buyers actively looking, there’s not as much competition yet. But as these rates are consistently in the low to mid 6s and the high 5% range, all these buyers on the sidelines are going to get off the sidelines and look at houses. That will create more demand, and with supply still being an issue, we’ll be seeing multiple-offer situations and appraisal gaps.”For refi clients, he’s preaching patience. Patel is in conversation with existing clients who can save between 50 to 75 basis points. But it depends on their circumstance — some might benefit from waiting another month or two, when rates potentially could drop even more significantly.

“With refinances, time is more on our side,” he said. “I’m not in a huge rush to lock because I think this is the start of the trend of rates continuously moving lower. Is it right for the client?”

New borrowers in play

Shannon Hoff, a California-based branch manager at American Pacific Mortgage (APM), said rates have dropped about 80 basis points in a short period of time.

“For example, I locked one loan today that would have cost the borrower 1.213 points on Monday versus 0.375 today. This loan amount happens to be $610,000, and the cost of the rate went from costing $7,400 to costing $3,200 today,” Hoff said. “The average mortgage loan amount in the U.S. is $405,000, and saving an extra 80 basis points could equate to $150 to $250 a month, depending on the overall scenario. This is huge for borrowers.”

According to Hoff, borrowers who take advantage of these rates are those who have purchased or taken a cash-out refinance over the past 12 to 18 months. In addition, some borrowers are looking to buy now or have been prequalified this past year.

“They can take advantage of a lower payment or even qualifying for a higher purchase price if the DTI was a key factor in the preapproval,” she said.

Hoff has already advised her clients on “rate alerts” to “get the ball rolling now so that they can be prepared for when the rate reaches the level of benefit.”

Looking forward, she believes rates will be volatile and “jump all over the place, just like the stock market.”

“Usually, when rates take a big drop, we see a correction the following week,” Hoff said. “I hope this is not the case, but I advised my clients that this is the reason why I locked three loans today.”

Cutting fees for VA borrowers

Patton Gade, the national director of military lending at UMortgage, said he believes the market has already priced in a September rate hike. He’s not limboing as low as possible on rates but is stacking fees on top or structuring refis to eat up equity.

“Some will dazzle with a 5.2% rate, but they’re charging a full point on the origination fee and two discount points,” Gade said. “I believe the best way to care for the veteran is a loan with little to no fees. The lowest rate for the lowest possible cost is the way I want to go.”

As for the future, he’s not banking on the notion that rates are going to continue dropping into the low 6s and beyond.

“You can’t bet your life or client’s financial future on what we think might happen in the next six, 12, 18 months. Things happen that are unexpected,” Gade said.

Daniel Sa, a division president at NFM Lending, said he’s been proactive in communicating with past clients about how they can benefit from refinances. He’s telling clients they can refi with no lender fees and get an appraisal reimbursement.

“Given the recent positive shifts in the mortgage rate environment, we believe the coming months, especially between September and December, will be the optimal time for our clients to refinance,” Sa said.

“For new customers, we are currently quoting competitive rates that reflect both the current market conditions at 6.375% to 6.750% and our anticipation of further rate reductions,” he said. “This strategic positioning is designed to ensure our clients not only benefit from potential rate decreases but are also well-informed and prepared to act quickly to optimize their mortgage terms.

“Our aim is to keep our clients ahead of the curve, maximizing their financial benefits and enhancing their overall satisfaction with our services.”